If you start with the knowledge that wireless industry consolidation is inevitable, T-Mobile’s acquisition of Sprint looks like the best possible outcome.
The U.S. Department of Justice rightly approved the $26 billion deal on July 26. After additional regulatory approvals the deal could close later this year.
The merger combines the third (T-Mobile) and fourth (Sprint) largest U.S. wireless companies, creating a strong challenger for the two dominant carriers, AT&T and Verizon.
This is especially good for the Puget Sound region. The combined company will be run from T-Mobile’s headquarters in Bellevue, ensuring the Eastside remains a hub of wireless innovation and employment.
Thirteen states are opposing the deal, but their “four is better than three” argument is weak when you look closer at what’s happening. There are not four comparable wireless companies in the U.S. There are two giants consistently trailed by two far smaller companies.
Without the merger, the smaller carriers are likely to fall farther behind as fifth-generation (5G) wireless technology emerges. That won’t increase competition or give consumers more options. But it will increase the chances of a de facto duopoly of AT&T and Verizon, descendants of the Bell System monopoly.
Also, under an agreement T-Mobile and Sprint reached with the DOJ, they will divest assets to Dish Networks, making it the new fourth-place carrier.
Losing Sprint won’t make the industry substantially less competitive. Sprint’s been driving on fumes, with a deteriorating business burdened by debt and shedding phone customers. How many merger opponents, insisting that Sprint remain independent, are devoted Sprint subscribers?
“Four players in a saturated market like the U.S. are hard to sustain, especially when you are at the starting point of a new infrastructure spending cycle like 5G,” said Chetan Sharma, an Issaquah-based telecom consultant.
After an attempted merger with AT&T failed in 2011, T-Mobile emerged as a scrappy third place competitor, with a disruptive price-cutting strategy. But it largely used up that bag of tricks.
To maintain growth and provide customers with a decent 5G alternative to AT&T and Verizon, T-Mobile needs Sprint assets. Specifically, T-Mobile needs Sprint’s spectrum holdings to build a competitive 5G network and avoid falling behind as the next generation takes off.
Wireless prices may increase a bit with the merger. But they’ll go up regardless, as carriers spend tens of billions building 5G networks. Budget options will continue, including prepaid services that Dish will operate.
Having a strong three-way race to provide next-generation service is the best possible outcome for customers and U.S. technology leadership. The alternative is two premium carriers and two also-rans with subpar networks.
Other regulators should concur with the DOJ and support this market-driven effort to create a true, long-term rival to the two dominant carriers.